For the millions of Americans whose finances have been shaken by the pandemic, the state stimulus payments, improved unemployment benefits, and plethora of debt moratoriums appear to have been a godsend when they were first announced. But what happens when these programs expire?
For one, bankruptcy attorneys predict that bankruptcy filings from consumers and small businesses will skyrocket, and they say the wave is likely to come before the end of 2021.
“There is a backlog of evictions, foreclosures and collections, all of which are being postponed due to the worsening pandemic, I think later this year, likely in late summer or early fall,” said Stephen Swift, chief attorney at Swift Bankruptcy Law Firm in Colorado Springs. “I think we’ll be busy, but the last thing we are today is busy.”
Despite a sharp decline in consumer spending and unemployment rates that have not been seen since the Great Depression, expectations that bankruptcies would rise over the course of 2020 have not really been fulfilled, according to a study published by Harvard Business School in August .
Instead, filings fell 27 percent year-over-year between January and August 2020, largely driven by a sharp drop in filings from consumers and small businesses, which usually rises alongside the unemployment rate. That Chapter 11 bankruptcies (reserved for large corporations) rose 35 percent year over year over the same period, showing the severity of the downward pressure from the consumer and small business side of the equation.
In Swift’s office, the Chapter 7 and 13 files used in these cases fell even lower than the national average, down more than 40 percent earlier this month, he said.
“We were more likely to hold our own even when things are slowing down,” said Swift, “but it was so bad that I’ve only filed two cases in the last 30 days, which is very unusual for me because that’s about 10 Percent of what. ” we usually do that. “
In some cases, the economic devastation caused by COVID-19 has been so sudden and severe for many people, and has resulted in job losses so widespread, that some do not even have the incomes or assets they could normally file for bankruptcy , he said. The cost of filing alone can also be prohibitive, reaching several thousand dollars in some cases.
“They don’t have the money to pay us,” he said. “You don’t have the income to protect yourself. So everything is on hold until that big traffic jam that is popping up is broken. “
Elizabeth German, chief bankruptcy and debt attorney at Robinson & Henry, also said the COVID-19 financial assistance programs passed at the federal and state levels have caused many people to postpone foreclosures and evictions – and these could all come at once, if these programs run.
“First it was three months, then six, and now there are nine months in which you don’t have to pay your mortgage,” said German. “What is not very clear to people is will you have to pay this back all at once when your forbearance is up, or can you have other options? And so, in my opinion, they are doing people a disservice by saying, “Sure, yes. Don’t pay your mortgage for nine months. “But they don’t explain what has to happen at the end of the nine months. “
By the time the debt matures, it is possible that a homeowner’s credit has declined so much and the debt to income ratio has become so unfavorable that an application to change the credit is unlikely to be approved.
Many people have run out of options, but she said that relying solely on short-term reparations from government aid will in many cases only delay serious long-term financial consequences.
“Trying to find some income in some way is a good idea,” she said. “Try to save where you can. When looking for options later, it is better to have an income to reach that settlement or bankruptcy than not to have that. Again, this is still a pipe dream for many people due to unemployment and COVID, but we are seeing small upward trends – like the hotels opening and the bars reopening – so hopefully people will get back in and be able to work. “
People who want to act need to do so quickly.
Mortgage leniency on government-secured mortgages and eviction moratoriums will expire on June 30 after an extension by the Biden administration. New applications for the Pandemic Unemployment Assistance program will no longer be available after April 5th.
Colorado received $ 383.3 million from Washington, DC late last year under the Coronavirus Response and Relief Supplemental Appropriations Act of $ 908 billion to help people across the country who are still struggling Cover mortgage payments and rents.